In Case After Case Rejection, Support Documentation Remains the Pitfall.
How adequate are your SR&ED support documents? Companies that feel that their support documents are good enough should read any one of the many CRA tax court rulings regarding support documentation, here is one example:
In 116736 Canada inc. v. Canada, [1998] ACI No. 478 (QL):
“[…] In my view, contemporary reports showing detailed records of each experiment attempted by a researcher could constitute evidence of a systematic investigation. Any taxpayer attempting to convince the Minister that he is entitled to deduct R & D expenditures without such evidence puts himself in a very precarious position. A taxpayer would be in a similar position when appearing before this Court to contest the Minister’s refusal to allow the deduction of his R & D expenditures.”
The Honorable Justice Gaston Jorré of the Tax Court of Canada
Translation:
Companies that claim SR&ED tax credits without ensuring that their support documents meet the filing requirements can expect a calim rejection. The path through the CRA Tax Court of Appeals is a long drawn out process reaching up to 3 years in many cases. If you are claiming Tax Credits, you absolutely must have your support documents in place.
Contemporaneous Documents:
As strenuous as creating analytical documents can be for over-stretched small and medium sized companies, you must also add the requirement of contemporaneous documents. The CRA is increasingly enforcing their policy on contemporaneous documents. These are documents that are created at the time the work is being conducted, not afterwards. Backtracking documents renders them non-contemporaneous. This means that you may indeed have the right support documents proving a technological uncertainty was confronted and leading to new knowledge forming a technological advancement. However, if the documents are not contemporaneous, then they can be rejected.
Timesheets:
Contemporaneous documents don’t just apply to analytical scientific documents, they also apply to employee time records, including timesheets. Simply put companies cannot wait until the end of the year to create time records.
Creating analytical and contemporaneous documents as well as manual individual timesheets requires a serious time load and the reality is that even under the best intentions,
companies put this on the sideline when under pressure.
New artificial intelligence R&D systems are emerging which assist R&D teams in creating and analyzing detailed scientific support documents. These documents are produced contemporaneously and require a fraction of the time of manually creating such documents.
To Learn more about Artificial Intelligence systems for SR&ED Support Documents, visit www.shain.co